Government to Tweak FDI Policy Ahead of LIC IPO

The government is planning a further simplification of its Foreign Direct Investment (FDI) policy ahead of the mega LIC IPO. While it is still not clear if the LIC IPO will happen in FY22 or in FY23, this FDI tweak is one of the enabling features ahead of the IPO.

This was disclosed by Mr. Anurag Jain, Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT). The final decision will be taken by the Cabinet but the proposal for the same has already been put up by the DPIIT.

The LIC IPO will be the largest in history and a key to the government disinvestment targets. However, the DIPAM and the Department of Financial Services, Ministry of Finance are clear that the FDI policy in its current form may not be conducive for many global investors.

As of now, the Indian insurance players can get 74% FDI through the automatic route and only beyond that the approval of the CCEA is required. However, the LIC Act that governs LIC is distinct from the IRDA Act and the necessary amendment has to also be made in LIC Act. 

In India, foreign direct investment (FDI) as per the RBI definition is purchase of a stake in a listed company which is 10% or more by an individual or entity based abroad, or any foreign investment in an unlisted firm. If the FDI rules are cleared under the LIC Act, it opens the doors for global funds to participate ahead of the IPO and also pick up stakes later on.

Under the extant SEBI rules, FPI (foreign portfolio investment) and FDI are permitted under public offer. However, the LIC Act has no provision for foreign investments. Hence, to allow foreign participation, there is a need to align the LIC Act with the provisions of SEBI.

As of now the size of the IPO is yet to be finalized. Based on whether the government hives off 5% or 10%, the overall size of the LIC IPO could be between Rs.70,000 crore and Rs.100,000 crore. Obviously, it will require substantial support from the QIBs for the IPO.

The LIC IPO is looking to also tap its vast reservoir of 25 crore policy holders and over 12 lakh agents to push the IPO through. Despite that, for an IPO valued at over $150 billion, the support of global long-only funds, pension funds and sovereign funds will be critical.

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